HONG KONG – Political opposition destroyed. Freedom of speech was suppressed. The independent court system could be next.
But while Hong Kong’s leading leaders are tightening the city by more than seven million people, they are proposing an important constituency: the rich. Top officials are preparing a new tax break and other sweeteners to portray Hong Kong as the most important place in Asia to make money, despite the increasingly autocratic rule of the Chinese Communist Party.
So far, the pitch is working. Cambridge Associates, a $ 30 billion investment fund, said in March it planned to open an office in the city. Investment managers have set up more than a hundred new businesses in recent months. Wall Street banks Goldman Sachs, Citigroup, Bank of America and Morgan Stanley are increasing their staff in Hong Kong.
“Hong Kong is second only to New York as the world’s billionaire city,” Hong Kong’s financial secretary Paul Chan said at an online meeting of financial executives this year.
Beijing cannot easily afford to scare away Hong Kong’s bankers and financiers. The former British colony remains an important gateway to the international financial system. Chinese companies need to raise money from global investors; those companies and wealthy Chinese also rely on making it easier for them to move their money abroad.
Beijing therefore finds a careful balance. It is the liberation of the people of Hong Kong to reverse the challenges facing the Communist Party government, such as the sometimes violent protest against the government that erupted two years ago. At the same time, it tries to enchant the city’s financial class to prevent it from going to another business-friendly place like Singapore.
“It’s a one-party state, but they are pragmatic and do not want to harm business,” said Fred Hu, a former chairman of Goldman’s Greater China enterprise, about Chinese officials.
For apolitical financial types, the changes will have little effect, said Mr. Hu, who is also the founder of the private equity firm Primavera Capital Group, said. “If you are a banker or a trader, you may have political views, but you are not a political activist,” he said.
To lure the rich, Hong Kong is working on a major tax break that will primarily benefit private equity, hedge funds and other investors. Officials are moving to make it easier to connect the city’s money managers with affluent continents. Chinese companies are selling tens of billions of dollars worth of shares in Hong Kong, increasing the profitability of Wall Street banks.
In its most recent move, Hong Kong last week proposed limiting how many companies should disclose their ownership, which could wrap up wealth in a city where the families of the Communist Party elite have long parked their money.
Not everyone won. More than 1 percent of residents have left since Beijing enacted a broad national security law last summer. Tens of billions of dollars have flowed from local Hong Kong bank accounts and into jurisdictions such as Singapore.
Tension runs tight inside Hong Kong’s shiny office towers. Even well-meaning government officials refused to speak in public for fear of being caught in the political crossfire between Beijing and world capitals such as Washington and London. Hong Kong’s strict rules for movement in the pandemic could also cause some expatriates to leave in the summer as soon as school ends.
In business today
For now, however, financial ventures are doubling Hong Kong. Neal Horwitz, an executive recruiter in Singapore, said finances were likely to remain in Hong Kong until the ship went down. ‘
In its largest offering to the investor class, Hong Kong proposed eliminating investment income tax, called interest, which is usually earned by private equity investors and hedge funds. Officials have been discussing the plan for years, but only submitted a bill in February and it could be passed by the city dominated in Beijing in the coming months.
Similar tax exemptions have been criticized elsewhere, including in the United States. But Hong Kong fears a financial exodus without such benefits, said Maurice Tse, a professor of finance at Hong Kong University’s business school.
“To retain these people, we need to give them a tax advantage,” he said.
Hong Kong has also proposed a program, Wealth Management Connect, that will give residents of the southern mainland, known as the Greater Bay Area, the ability to invest in Hong Kong-based hedge funds and investment firms. Officials boast that it will give foreign companies access to 72 million people. Hong Kong and Chinese officials signed an agreement in February to launch a pilot program at an unspecified time.
Pandemic travel restrictions have slowed the momentum of the proposal, King Au, executive director of the Financial Services Financial Services Board, said in Hong Kong, but it remains a top priority.
“I want to emphasize how important the Chinese market is to world investors,” Au said.
Hungarian money has already helped Hong Kong look more attractive. According to Chinese data companies, the largest provider of $ 52 billion is a record for companies that sold new shares on the Hong Kong Stock Exchange last year. New offerings this year have already raised $ 16 billion, including $ 5.4 billion for Kuaishou, which operates a Chinese video app. The beginning of the record was helped in part by Chinese companies put under pressure by Washington not to raise money in the United States.
Managing the offerings has helped Goldman and Morgan Stanley climb to the top of the Asian rankings that measure the fees banks collect. A Goldman spokesman said he plans to accelerate his Hong Kong appointment by nearly a fifth in 2021 compared to last year. Morgan Stanley has doubled its rate of rent this year, a spokesman said.
Thomas Gottstein, CEO of Credit Suisse, the Swiss bank, said in mid-March that it would triple its rents in China, and a spokesman said the increase in staff in Hong Kong was part of it. Bank of America is adding more people in Hong Kong, while Citi said it will only hire 1,700 people in Hong Kong this year alone.
HSBC, the British bank, came under pressure from Chinese state media to hack to the party line. Still, it is considering moving some of its top executives to Hong Kong, as it will ‘be important to be closer to growth opportunities’, HSBC CEO Noel Quinn said in February.
Investment funds are also pouring into Hong Kong after officials lowered regulatory barriers in August to impose legal structures similar to those used in low-tax, opaque jurisdictions such as the Cayman Islands and Bermuda. Government data shows that 154 funds have been registered since then.
City officials last week also proposed enabling companies to hide sensitive ownership data, in a move that could benefit businesses and Communist Party officials. The measure can already come into effect in May and does not need to be approved by legislators. Critics say the move would make it nearly impossible to track down the individuals behind companies registering in Hong Kong.
“The proposed law will facilitate corruption, fraud and other crimes,” said David M. Webb, a former banker and longtime investor in Hong Kong.
It could also help those in China’s top leadership, who are sensitive to any accusation that they have used their status for personal gain. The families of Xi Jinping, China’s leading leader, and Li Zhanshu, the Communist Party’s no. 3 official, at one point owned property in Hong Kong, according to a track that can be traced in part by public records.
Although officials welcomed cases, they made it clear to the financial and business world that they would make no difference. In March, Han Zheng, a Chinese deputy prime minister, praised the performance of the stock market and the financial sector in a meeting with a political advisory group, but made clear his limits.
“The signal to the business community is very simple,” said Michael Tien, a former Hong Kong lawmaker and businessman who attended the closed session. “Stay out of politics.”